How bricks-and-mortar stores are driving online sales

By Dan Monheit, originally published on Commercial Real Estate 13.10.20

I pedal along Chapel Street kitted out head to proverbial toe in MAAP cycling gear — I have no affiliation with the brand, so it’s not a plug, but rather to make a salient point later in the story — through the eerily deserted streets of lockdown Melbourne.

Stretching on endlessly, for lease signs punctuate the window of every other store, painting a depressing picture for the future of traditional retail.

While we feel the trauma of store owners and the shattering of their dreams, empathy must be extended to landlords, whose futures have gone from bad to pretty much untenable.

It couldn’t be a more different picture for online retailers, riding the supersonic, coronavirus-led boom that’s brought on a decade of growth in a little over six months.

It took Kogan.com, Australia’s leading e-commerce player, 12 long years to go from spare-room start-up to billion-dollar business — an epic milestone it achieved this May. Just three locked-down months later, in August 2020, that valuation rocketed from $1 billion to more than $2 billion.

Back on the high street, the pandemic has accelerated the already tumultuous downward spiral of traditional retail and, sadly, it continues unabated today.

However, despite what the commentators might tell us, the growth of online retail (projected to be about 15 per cent of total retail sales for the year, according to Australia Post) has not caused the death of traditional retail, or vice versa. While the two are perhaps correlated, one is not directly caused by the other — at least not on a brand-by-brand basis.

While the offline-versus-online shopping debate rages, the reality is that it shouldn’t be a debate at all.

According to a breakthrough piece of research, The Halo Effect: How Bricks Impact Clicks, by the global trade association International Council of Shopping Centers (ICSC), the two can not only co-exist, but directly benefit from each other’s existence.

ICSC analysed more than $US31 billion ($43 billion) in consumer spending from more than 41 million credit and debit cardholders during 2016, ’17, and ’18. The research highlights how an online or in-store purchase is not a standalone event, but rather one link in a chain of interconnected transactions.

According to the research, when consumer spending starts in a retail store, it is typically followed by additional purchases on that retailer’s website. When buying begins online, shoppers tend to make subsequent purchases in the retailer’s bricks-and-mortar stores.

Across the study, this cross-pollination amounted to millions of successive transactions, significant incremental spending, and increased engagement with a brand from the moment a sale occurred.

When it comes to new store openings, the study revealed that established brands received an average of 37 per cent more web traffic when they opened an additional store. The impact was even more pronounced for newly established brands, who saw an average uplift of 45 per cent.

So what is the halo effect and how do retailers harness it?

In behavioural science terms, the halo effect is a cognitive bias that causes us to take an initially positive impression of a person, product or brand and extend it to other unrelated areas.

In this case, it highlights how a positive relationship can be beneficial across a retailer’s entire omni-channel ecosystem, whether that’s content on social media driving customers in store, in-store experiences influencing online sales, e-commerce capabilities driving click-and-collect visitation or any other combination you can imagine.

Online shopping presents the very best parts of rational shopping, but we all know that shopping is far more than a purely rational process. There is something infinitely more powerful in the physical space than we can ever experience online.

A bricks-and-mortar store, in all of its three-dimensional glory, can create a halo experience — and a lasting halo effect — that we now know unequivocally pays dividends, offline and on.

Great retailers have known this since the get-go, and have set about creating halo experiences through design, decor and music, as well as through the expertise of their retail staff and broader in-store hospitality.

All of these ingredients transform shopping from a pragmatic, rational experience into a fun, enjoyable, memorable, emotional one.

A heightened, multi-sensory experience means stronger memories are created, therefore nudging consumers to consider and value the brand more. Great service and assistance with fits or styling can also give consumers additional confidence to buy online later, which the ICSC research shows they do in droves.

This also loops back nicely to my cycling kit. Melbourne-based global cycling brand MAAP started as an online-only brand in 2014, before establishing itself in the real world of retail in 2018 with a store in North Melbourne.

When I first discovered the brand online, I was impressed with the designs but hesitant to part with $600 for a couple of pieces of Lycra.

If you’re a cyclist, you’ll know that fit is everything, which is why one sunny afternoon I cycled over to the store, which showed off the brand’s quality product, effortlessly cool and minimalist aesthetic.

The service was fantastic, and in a little under 30 minutes, I was not only kitted up but converted into a true believer.

I’ve made a dozen purchases between then and now, but haven’t visited the physical store since. From MAAP’s perspective, that first visit was an expensive one, forcing the fledgling brand to cover sky-high rents as well as retail wages, but it’s unlocked thousands of dollars of higher-margin revenue in the two years that followed.

And it’s a trend that is growing with Australian brands that were born online, such as sleepwear brand Homebodii, online art hub Bluethumb and eco store Biome, adding bricks to clicks and opening real-world stores. That further proves the synergy can flow both ways, and offers more than just hope that bricks-and-mortar retail shopping will not only survive but thrive.